MINUTES OF THE
SENATE COMMITTEE ON COMMERCE AND LABOR
Sixty-seventh Session
May 3, 1993
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Monday, May 3, 1993, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Sue Lowden, Vice Chairman
Senator Ann O'Connell
Senator Mike McGinness
Senator Leonard V. Nevin
Senator Lori L. Brown
COMMITTEE MEMBERS ABSENT:
Senator Ray Shaffer (Excused)
STAFF MEMBERS PRESENT:
Brian Davie, Senior Research Analyst
Sheri Asay, Committee Secretary
OTHERS PRESENT:
Sam Sorich, Assistant Vice President, National Association of Independent Insurers
Terry Rankin, Commissioner of Insurance, Department of Insurance, State of Nevada
Lois Lazor, Private Citizen
Senator Townsend opened the meeting, and said the committee would be voting to introduce Bill Draft Request (BDR) 4-1027 and BDR 54-1098.
BDR 4-1027:Includes test of person's hair as permissible test in certain circumstances to determine presence of controlled substance or other chemical.
BDR 54-1098: Provides that, for purposes of provisions regulating real estate brokers, "real estate broker" includes certain managers of property.
SENATOR NEVIN MOVED TO INTRODUCE BDR 4-1027 AND BDR 54-1098.
SENATOR O'CONNELL SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR SHAFFER WAS ABSENT FOR THE VOTE.)
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Senator Townsend stated that Senator O'Connell would be discussing Assembly Bill (A.B.) 299 on the floor today and Senator Shaffer would discuss Senate Bill (S.B.) 328.
A.B. 299: Revises provisions governing annual meetings of stockholders of banks. (BDR 55-1055)
S.B. 328: Makes various changes to provisions governing licensure and discipline of mortgage companies. (BDR 54-626).
Senator Townsend referred to a handout from the Senate Committee on Commerce and Labor meeting of April 21. It was breakdown of insurance claims in Nevada as compared to the national average (Exhibit C).
Sam Sorich, Assistant Vice President, National Association of Independent Insurers (NAII), testified before the committee regarding the "pay-at-the-pump" insurance method as proposed by author Andrew Tobias. He explained NAII, and stated that NAII has taken a position opposing the proposal.
Mr. Sorich announced that he would give the pros and cons of the pay-at-the-pump method, and then show how the proposal has evolved in California. He referred to page 1, number 1 (Exhibit D), and detailed the history of the pay-at-the-pump proposal. "First of all it is a pure no-fault auto insurance system...no lawsuits for pain and suffering, no lawsuits for economic recoveries, and no losses for damages to cars." Mr. Sorich explained that many states have no-fault insurance, while still allowing lawsuits.
Mr. Sorich discussed how other states deal with pain and suffering litigation.
Senator O'Connell wondered about the 33 percent of the market insurance that the independent insurance agents write, and asked how much goes for attorney fees that include pain and suffering claims. Mr. Sorich said the estimate nationally is about 17 or 18 percent of the premium dollar.
Terry Rankin, Commissioner of Insurance, Department of Insurance, State of Nevada, agreed with that estimate.
Mr. Sorich referred to paragraph B of Exhibit D,, to show how the insurance would be paid.
Senator Townsend pointed out that the 40-cent figure in paragraph B of Exhibit D refers to California figures and not those of Nevada.
Mr. Sorich outlined, from Exhibit D, what the pay-at-the-pump proposal would provide in terms of benefits.
Senator Townsend asked if a driver could get extra insurance if the benefits were not enough. Mr. Sorich said that those for whom the coverage under this system was not enough, could go to the private sector and purchase additional insurance. Mr. Sorich said that, theoretically, they would be eliminating all uninsured drivers with this system.
Senator Lowden asked about the impact on tourism with the gas price increase, under this plan. Mr. Sorich replied, "That's one of the sticky problems. Because, since everyone would be paying when the gas is purchased, there would probably be some harm done to tourism, because out-of-state drivers...would be paying into the system, and not getting any benefits..."
Senator Townsend said that he wanted to be sure of the numbers. He pointed out, "The 40 cents is not the total amount of the policy, because you're also paying for registration, and you're also paying for tickets, and those are critical components on what Mr. Tobias' conceptual premise is here..."
Mr. Sorich explained that the 40-cent gas hike could be reduced by increasing the registration fees. He thought that Mr. Tobias' book did not explain the level of registration fees necessary to reach the 40-cent gas increase.
Senator O'Connell thought this plan would focus on the individual driver, instead of on the other driver. Mr. Sorich agreed, adding that, "...you're dealing with your own insurance company, the impetus for fraud is probably reduced, it's a more expeditious system, it's fairer..." He explained that the foundation of the plan, as well as most of the cost savings, comes from the no-fault system. Mr. Sorich added that the plan contains a method of paying for itself.
In response to a question by Senator Brown, Mr. Sorich responded that there is no current nationwide legislation along these lines. "...One development in Washington [D.C.], I think, does affect this, the talk in Washington [D.C.] of an added Federal tax on gasoline, I think, is going to maybe play into the discussion of this issue, because we may be looking at an extra Federal tax on gasoline, and then, you know, we're going to have to put that into the context of maybe paying more for insurance through the gas profits."
Senator Brown mentioned the problem in the State Industrial Insurance System, of doctors overcharging because the system has unlimited medical coverage. She asked if Michigan had the same problem when they went to unlimited medical coverage. Mr. Sorich said it has been a problem for over 10 years in Michigan. He explained that Michigan's no-fault system works well, but is very costly due to the unlimited medical coverage. Mr. Sorich said there was legislation pending in Michigan to reduce the unlimited medical coverage. Senator Brown suggested reviewing the bills for reasonableness to reduce these costs. Mr. Sorich responded that Michigan has not used that method. He added that the New York no-fault law uses the workers' compensation fee schedule for auto medical claims.
Senator Nevin asked if the pay-at-the-pump system was just "setting up an insurance pool." Mr. Sorich agreed. Senator Nevin said that past history has shown that an insurance pool system almost always runs out of money. He was concerned that, "We then have the task of either raising the price at the pump...or the premiums...." Senator Nevin pointed out that Nevada has one of the highest gas taxes in the country.
Mr. Sorich said that adopting the pay-at-the-pump system was a point of no return. He explained that once in place, the state could not go back to the old system, because "the old system is not going to be in existence anymore."
In response to a question by Senator Brown, Ms. Rankin explained that the pay-at-the-pump system, according to Mr. Tobias, would be transferred over to the Department of Motor Vehicles and Public Safety or the Offices of Community Services. She added, "Presumably...you would have a regulatory structure, and yes, you probably would review it, the way that you're talking about, for increases."
Ms. Rankin stated her opinion that it was misleading to throw out a figure of 30- or 40-cent per gallon gas increases, when there are so many variables.
Senator Townsend said the important thing is that the committee gain an understanding of the concept, the advantages and disadvantages. "The actual numbers, that's for another debate," he added.
Ms. Rankin stated there were two major reforms involved here, a no-fault concept, and the change to pay-at-the-pump from the system the state currently has.
Senator Townsend pointed out that Andrew Tobias' book involves a lot of social changes, in addition to his insurance concepts.
Mr. Sorich explained the role of insurance companies under the Tobias plan, outlined in Exhibit D, and the process the companies would go through to get the insurance business.
Mr. Sorich went over the arguments for and against the pay-at-the-pump proposal, as detailed in Exhibit D. He quoted the RAND study, which contends that if a pure no-fault system were to be implemented, 52 percent of the costs could be saved. (The original Rand Study is in the research library with the Senate Commerce and Labor Committee meeting of 4/21/93 - Exhibit H.)
Senator Lowden wondered how this plan would impact tourism, if driving was curtailed because of the increased cost of gasoline. There was discussion about the impact on tourism with this system.
Mr. Sorich discussed the 40-cent gas increase, which he said was questionable because, "It's not clear on what registration fees and drivers' license fees are needed to support that 40 cents."
Mr. Sorich said Allstate Insurance came up with a 72-cent a gallon cost for the consumer. He said the plan does not provide for comprehensive, coverage, fire and theft coverage, protection for out-of-state driving, and only provides basic collision protection. Mr. Sorich concluded that the consumer would end up paying more at the pump, extra registration fees, and extra coverage for the vehicle. There was discussion on what the basic coverage under the plan would include.
A question arose regarding how drivers of solar or battery-operated cars would pay for their insurance. Higher registration fees was suggested as a solution.
Mr. Sorich discussed other drawbacks with the pay-at-the-pump method. He then talked about the experience California had with Senate Bill 684, introduced by California Senator Art Torres.
Mr. Sorich said the bill was as close to Andrew Tobias' book as possible. Referring to page 3 of Exhibit D, Mr. Sorich elaborated on section IV, subsection A6, which deals with registration fees. He explained how bad drivers and high risk drivers would pay higher fees.
Mr. Sorich pointed out the potential inequity in the higher gas costs. He explained that there would be those who, being unable to afford new vehicles, would buy older ones which use more gas. Referring to the April 20 version of SB 684, Mr. Sorich stated that it addressed the problems of lawsuits, risk characteristics and consumer choice.
In response to a question by Senator Townsend, Mr. Sorich stated that the April 20 version passed the California Senate Insurance Committee "about 10 days ago." He described the system as "a no-fault law with a verbal threshold."
Senator Townsend wondered what the average insurance costs were in California. Mr. Sorich responded that the average premium was $783.
Mr. Sorich discussed the latest version of SB 684, outlined on page 3, section B, subsection 1-6 of Exhibit D. There was general discussion on the voucher system and consumer choice.
Mr. Sorich said, "It should be noted, what we're doing under this bill now, is we're putting back into the system, some of the cost savings that Tobias said that he was taking out." He explained that there are still the insurance commissions and the insurance company costs. Mr. Sorich pointed out that government costs could actually increase, because "some agency is going to have to explain how the system works and parcel out the policies."
Senator Brown pointed out that the California plan provided for arbitration if the consumer felt he was being treated unfairly. She asked if litigation would be possible for the consumer who chooses to take extra coverage. Mr. Sorich replied, "As long as you stay in the no-fault system...that company would be obliged to handle your claim fairly in those arbitration procedures." He said the plan mirrored that of New York's plan.
Senator Nevin expressed concern about caps being too low for injury costs. Mr. Sorich explained, "The bill that we're looking at (the April 20 version) uses the New York no-fault law. It's not a monetary cap, it's a verbal cap...you must have a serious injury to collect for pain and suffering damages." He pointed out that, even if a person only had $15,000 of no-fault protection, the person could still sue the other driver for medical and wage loss benefts.
Senator Nevin mentioned the problem of uninsured motorists. Discussion followed regarding uninsured motorists under this plan.
Mr. Sorich referred to page 4, section IV, subsections C,D, and E of Exhibit D, which details the future of S.B. 684. He explained that the prospects for passage were not good, as the judiciary has long been opposed to no-fault insurance. Mr. Sorich quoted Mr. Tobias as saying he is considering sponsoring his own initiative to put before the voters in 1994. He talked about how other states are dealing with the pay-at-the-pump concept, which he said has been around for about 20 years.
Mr. Sorich concluded his remarks with the concern that the pay-at-the-pump concept might obscure the debate on the areas that drive up the insurance costs, i.e., litigation, theft, fraud, medical costs, and auto repair. On the positive side, he mentioned the fact that reform of the insurance system is finally being addressed.
Senator Nevin stressed that the committee was not seriously considering this legislation for Nevada. Senator Townsend added that this was merely an education day.
In response to a request by Senator Townsend for specific statistics that apply to the California bill, Ms. Rankin responded that her office has put together some numbers to "...apply Nevada's number of gallons directly to the bill we've seen in California."
Ms. Rankin said she was reluctant to give numbers, because they did not cover a lot of situations, i.e., registration fees, the costs for the government infrastructure to run it, and the fact that the number of gallons they were dealing with did not include passenger vehicles only, but diesel autos as well.
Senator Townsend discussed the problem of insurance rates. He said he has always been concerned that whether a person buys a medical policy on an individual basis, or with a group, the person does not get the benefit of substantial utilization review or contracted care. He discussed past efforts in the area of insurance rates and stated, "We need to look at how do we drive that medical cost component down, because when you look at how many drivers you have...you should be able to get a benefit for that amount of purchasing power."
Lois Lazor, Private Citizen, testified, as a consumer, about insurance rates. She read from prepared testimony (Exhibit E), which included documentation for her remarks.
Senator Townsend read a draft letter addressed to all professional licensing boards, Title 54.
SENATOR NEVIN MOVED TO APPROVE THE DRAFT LETTER.
SENATOR O'CONNELL SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
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There being no further business, the meeting was adjourned at 10:06 a.m.
RESPECTFULLY SUBMITTED:
Sheri Asay,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE:
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Senate Committee on Commerce and Labor
May 3, 1993
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